“I wrote ‘Guardians of Prosperity: Why America Needs Big Banks’ to try to broaden the discussion concerning the direction of the financial system in the United States. Americans have been taught by their political leaders and the media that banks and bankers caused the financial crisis that began in 2008. We are told they did so due to personal greed and a total disregard for the needs of the American people.”
Welcome to Our Take, where we take issue with statements made by those with an agenda. Today we feel compelled to address comments Mr. Bove makes in his piece on CNBC.
“At this moment, the general belief is that there is no fine that is too high and no punishment that is too great for banks and bankers.”
The top fine against a single bank to date is the near $13 billion handed to J.P. Morgan earlier this year for their role in misleading ordinary Americans, Fannie Mae and Freddie Mac about the quality of some of their mortgage backed securities.
Chump change for an industry which has amassed $2.385 trillion in EXCESS reserves. Excess meaning surplus funds not required by government, but on which they are paying interest to the banks. Second paragraph in and I am already running out of combinations of bold, italics and font sizes that accurately capture my level of incredulity.
Punishment? Who is being punished? Yes some “rogue” traders received punishment for their roles in the London Whale scandal. Textbook example of isolating marginal figures in the hope that naive investigators (or, let’s face it, hamstrung ones) say, “We got our man!” Anybody significant gone to jail? Or by punishment do you mean reduced use of the corporate jet?
My mistake. As of this May, almost 8,000 arrests have been made. Of protesters.
“The question I pose in the “Guardians of Prosperity” is: “Who has been most impacted by the new regime?” I say it’s not the banks. It’s U.S. households, low-income families, small businesses, the United States government and, most importantly, the standing of the United States in financial markets.”
Darn right it’s not the banks who are most impacted by this “new regime.” Kim Jong Un brought in more of a new regime than what we have seen with the banks. Why are average Americans and small businesses the most impacted?
Some of them are still deeply affected by lower property values and debt amassed during the recession, some of which came about due to fraudulent lending practices that caused them and their neighbors incredible financial hardship.
Small businesses are most impacted by this new regime because the banks are sitting on mountains of cash like Jabba the Hut while small businesses are chained to their side like Princess Leia waiting to see what the big monster will do next.
“Most importantly, the standing of the United States in financial markets?”
What would America’s standing be in financial markets if their small business sector was thriving, innovating, importing, exporting and creating jobs, awhile those workers were spending?
“There is no question that banks, bankers and Wall Street in general were major participants in the creation of the financial crisis. I would agree also that any bank or banker involved in questionable or illegal activity should be punished.
However, did they cause the financial crisis and were they the only participants in the financial system that failed to meet their responsibilities? The answer here is a resounding ‘No. No. No.’”
You are correct in that the banks were not the only ones who failed to meet their responsibilities. Nice to include a line or two in the sake of balance before casting the wide net in the search for culprits.
We’re far beyond expecting the industry to police itself, and are woefully aware of government’s weak efforts to prevent the crisis. That leaves us stuck. My wish for 2014 is for the banking system to give us an Edward Snowden.
“Massive amounts of funds grew in the hands of foreign banks. The People’s Bank of China now has over $3.5 trillion in reserves up from virtually nothing a few decades ago.
This money had to be invested. It was invested initially in U.S. government debt. But excess funds were building at a faster rate than the Treasury could absorb it. Therefore, the money was diverted to new sectors. Real estate absorbed a significant amount of these funds.”
Wow! Massive funds growing in reserve that had to be spent, maybe because there was no incentive to keep it in reserve! Looking for ways to generate profit that has a probable residual effect of benefiting the economy! Novel concept!
Yes there is the risk it will be poorly spent, but that is a risk in our system. Sitting in reserve it’s a guarantee no one save the banks will benefit.
“To argue that bankers were the cause of this collapse is unusually short-sighted but it is what the government and media have done and the American public has accepted this explanation.”
In the prelude to this quote Mr. Bove speaks about the growth of personal debt, and for the most part he is correct in identifying consumer overspending as playing a significant role.
Who gave low wage workers mortgages befitting the upper middle class?
Who structured the debt in such a way that people would be sucked in by low initial rates before being suffocated by ballooning payments a few years in?
Who packaged these crap “securities” along with other crap products and sold them off so as to absolve themselves of risk?
Then who were dumb enough to buy similar products back from other institutions?
Who forged signatures on documents?
Who manipulated the Libor?
It sure as hell wasn’t Joe Lunchbox.
“Based on this understanding of the financial collapse, policy makers embarked on a course to kill the nation’s largest and most successful banks. The United States has set in place a philosophy of financial isolationism in a growing global financial system. While the world financial system gets bigger and bigger, the United States wants to get smaller and smaller.”
Killing them? How exactly, by letting them grow bigger? Killing them with kindness? Throughout our existence Bankless Times has provided examples where banks beyond a certain size are uncontrollable, without the capacity to even seemingly manage themselves. You literally cannot run something as large as the largest banks in an efficient and controlled manner.
“In this global financial system, the United States is shrinking in influence. In 1950, the United States dollar was approximately 88 percent of the world’s convertible currencies. It is now 18 percent. While exchange rates are a factor in determining which country has the most money in dollar terms, it appears that the United States is no longer even in the top three.”
In a global economy do you really expect one country to hold 88 percent of the world’s convertible currencies?
Who is a bigger influence in the world overall? Which region has the human capital, economic capacity, human resource capability and infrastructure systems to take the role? Europe? India? The BRIC’s? Yes China is playing a growing role, but they have plenty of issues including property issues, press freedom, an aging population, and the developing effects of the massive artificial population shift from rural areas to urban ones. If the throne is abdicated, there is no one to fill it. Does the realm look different? Absolutely. But the monarch with that view is still the same.
“ The United States will give up the position of the dollar as the world’s reserve currency.”
This reeks of scare tactics. Again, who is going to take their place? The euro? The rupee? There would have to be an incredible set of circumstances that would have to fall into place before a currency from a regime such as China’s would become the reserve currency.
“Mastercard and Visa do not lend money.”
Good lord, pass the egg nog. They sure make a nice middle man for the issuers and they do make transaction fees on debt-fueled spending, so the more spending we complete with our cards, the more they make.
“The money at the Fed is there because the banks are being forced through regulation to place it there.”
I have yet to see an explanation of how the banks are being forced to do this. Are they forcing themselves to do this because it’s easy money to have their funds make money by just sitting there? Is it too much of a pain in the ass to lend money to small businesses in little tiny amounts that are not worth the while of large banks? Might they lend it out if they were forced by negative interest rates to lend it out, a suggestion made by Allan Blinder?
If they need more sustenance than Joe Lunchbox and Small Business America can provide, might they be too big?
“The regulators are claiming they want to assist small business. But in the past five years, small-business loans appear to have declined, according to data released by the Federal Deposit Insurance Corporation (FDIC). Small banks are simply being devastated. For the first time in the recorded history of the U.S. banking system, we went more than two years with no one seeking to open a new bank.”
Would YOU open a new bank right now? That would be like opening a fruit stand next to Costco. Why is is the sole responsibility of small banks to issue small business loans? Are small businesses crap on their shoe? Have you lost your way?
“The government has now established the precedent that those guilty of financial irregularities should go free and those who are innocent — bank employees and stockholders — should be punished.”
We agree that a few sacrificial lambs have seen the noose. Why hasn’t the river flowed more upstream, could it be because the financial sector is one of three industry sectors jockeying for the top spot in lobbying dollars spent over the past 15 years? Is it possible no one higher up has been implicated because a combination of the lobbying and cross-pollination of bank officials moving to government, vice-versa, and back again have anything to do with it?
You’re speaking out of third side of your mouth, if that’s even possible.
“No one would have dreamed that a Chinese spaceship would be sitting on the moon right now, with China planning to build a colony there in 2020, while the United States has no prospect of equaling that effort.”
Maybe that’s because we need to fix the mess we’ve made here first.